Here's who would save money with Trump's plan to eliminate taxes on tips
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- President-elect Donald Trump signaled on Sunday that one of his first big moves will be ending taxes on tips.
- The proposal would likely impact a small segment of workers in the US.
- Those workers are likely to be younger and to work in the restaurant industry.
Gen Zers, waiters, bartenders, and delivery workers might end up with a lower tax burden if President-elect Donald Trump gets his way.
In a Sunday post on Truth Social, Trump said, "Members of Congress are getting to work on one powerful Bill," that will eliminate taxes on tips as part of a wider push to extend the tax cuts passed in his first term. The post also said that his plan will be paid for through tariffs. Trump proposed making tips exempt from federal income tax on the campaign trail, as well as slashing taxes on overtime and Social Security benefits.
Economic experts pointed out that Trump's proposal — and one from Harris that followed similar contours — would have little impact on lower-earning workers, with many exempt from taxes already due to how little they make. The Yale Budget Lab found that just around 4% of families on average between 2017 and 2022 reported tips to the IRS.
Ernie Tedeschi, Yale Budget Lab's director of economics, also found that over one-third of tipped workers already had low enough earnings that they owed no federal income tax, meaning they wouldn't see benefits from the proposal.
"It is a relatively low-cost way of trying to provide relief to highly visible low-income workers," Tedeschi told BI. But it could also be felt unevenly among otherwise similarly-paid workers. Tedeschi gave the example of a cashier at McDonald's and a tipped waiter at Waffle House. Both are in fast food service, but the tipped waiter would benefit based on tipping conventions, while the cashier would not.
Even so, a subset of workers would stand to benefit from the proposal. The Yale Budget Lab studied who would be impacted by eliminating taxes on tips. Tipped workers tended to skew younger, per a June analysis of Census Bureau data from Tedeschi. The median tipped worker in 2023 was 31 years old, and a third of tipped workers were under the age of 25.
The Yale Budget Lab also looked at what roles and industries tipped workers are concentrated in. Across industries, restaurants and other food services had the greatest share of total tips — which is unsurprising, considering how compensation is generally structured in that industry. In 2023, the median pay for food and beverage serving and related workers was $14.29 per hour, according to the Bureau of Labor Statistics.
The Yale Budget Lab also looked at which occupations were getting the lion's share of tips. Waiters and waitresses received over a quarter of all tips, while bartenders raked in about a fifth. Couriers and messengers were also getting a larger share of tips — increasing from under 1% in 2017, per the analysis. That group includes, in part, delivery gig workers.
Some economists and tax experts previously told Business Insider that unless care is taken, some higher-paid professionals could restructure their compensation to take advantage of a tax exemption for tips by reclassifying salary pay as a "gratuity" instead.
The Trump campaign did not respond to BI's request for comment on the policy proposals and their impact.
Should an end to paying federal taxes on tips become law, families impacted could see an average tax cut of $1,700, per the analysis, although lower earners would see a much more modest cut. But right now, nothing is set in stone — Republicans and Trump are still crafting their tax plans, and any potential package could emerge much different than it began.
Are you a tipped worker who would benefit from eliminating taxes on tips? Contact this reporter at jkaplan@businessinsider.com.